2 Dec 22
The Courts, not usually known for being up to date with the latest legal challenges within technology, have been quick off the mark with securing the proprietary rights of NFT owners in Singapore.
Facts of the Case
Mr. Janesh Rajkumar contacted “chefpierre” via an NFT and crypto currency lending marketplace to enter into a loan agreement in which Mr Rajkumar would use his Bored Ape NFT (worth approximately $95,000 and the only NFT in the collection that features a Bored Ape wearing a beanie) as collateral for a loan of ETH cryptocurrency. Mr Rajkumar had previously entered into similar agreements with other lenders on the platform using NFT’s as collateral but, as this NFT was very valuable to him he would always only deal with reputable highly ranked lenders and would always specify that the lender should never use the foreclose option without allowing Mr Rajkumar reasonable opportunities to make full repayment of the loan.
During their dealings Mr Rajkumar informed “chefpierre” that he needed an extension to repay the loan. “Chefpierre” initially agreed to such extension, however, subsequently changed their mind and informed Mr Rajkumar that he needed to repay the loan within seven hours. When Mr Rajkumar did not make this deadline “chefpierre” claimed ownership of the Bored Ape NFT and listed it for sale. Mr Rajkumar brought a claim for an injunction against “chefpierre” in order to re-claim his NFT and for “chefpierre” to accept repayment of the loan.
The judge found firstly that Singapore was an appropriate jurisdiction in which to bring the claim as Mr Rajkumar was located in Singapore and carried out his business there. In addition, it found that it is possible for one to enter into a contract with a third-party using their pseudonym.
The Court also found that NFTs can be regarded as property as:
- metadata is a key aspect of an NFT which allows one NFT to be distinguished from another;
- an owner could clearly be identified as the person who has access to the NFT on their cryptocurrency wallet;
- as NFT’s are part of the blockchain, this allows for the ability to trade the NFT and clearly take monetary worth from such trades; and
- the NFT is a stable asset much like money in bank accounts, that exist on a ledger rather than in physical form.
Accordingly, Mr Rajkumer was granted the injunction.
As this was the first time in which a court has frozen the trading of an NFT in a commercial dispute, lessons can be learnt from this case, namely:
For Rightsholders and Owners of NFT’s
- It is becoming increasingly clear that NFTs convey enforceable property rights (as confirmed by a case in the English High Court whereby NFTs that were stolen by hackers from a cryptocurrency wallet) which in turns provides owners and rightsholders further remedies in the world of increased decentralisation. For example, following this ruling it would seem likely that such assets would therefore be able to benefit from freezing orders or proprietary injunctions, giving greater protection for NFT owners and rightsholders in enforcing their assets.
- A second, more practical point, is that in bringing his claim Mr Rajkumar was allowed to serve court papers on “chefpierre” through their Twitter account and chat platform Discord, as well as the messaging function of the “chefpierre’s” cryptocurrency wallet address. It was noted that as “chefpierre” regularly posted on Twitter, it would eventually be possible to obtain their real identity. In such cases effecting service can be difficult as a parties’ physical location cannot sometimes be ascertained, however, by allowing service through social media channels gives an effective and helpful solution allowing rightsholders increasing flexibility to bring such claims.
- In entering into any commercial agreement, especially one whereby the ability to take control of a valuable asset is introduced, the commercial terms in which these assets can be claimed needs to be clearly and painstakingly set out so that foreclosure options can be effectively exercised.